Balrampur Chini Mills (Q6 FY11)

CMP Rs67, Target Rs81, Upside 20.9%

• March Q revenues flat yoy weighed down by 6% drop in sugar revenues (+2% vol growth including 13k tonnes of export but free sugar realization dropped 20%); a ~45% higher cane crush led to robust by-product volumes
• RM costs up ~20% yoy on higher crushing volumes but landed cane cost for the Q down 14.8% to Rs216/qtl; EBIDTA margin jumped to ~44% but since BRCM has changed its accounting year-end from September to March to align with IFRS standards, closing free sugar inventory is valued at Rs26.54/kg, higher by about Rs1.2/kg than otherwise would have been the case, thereby boosting EBIDTA; total sugar inventory at 0.5mn tonnes as of March 2011  
• Conference call update: India production seen at 24.2mn tonnes, slightly below earlier 25mn tonne estimate; data on sowing suggests 2011-12 sugar output likely to rise 5-7%-BRCM own crushing likely to improve 15%
• Sugar price update: BRCM expects sugar prices to move up from current level (~Rs28/kg in UP) as 1.2mn tonnes of ALS and 0.5mn tonnes of OGL exports (OGL full quantity likely to be exported before onset of monsoon) lead to reasonable 5mn inventory by Sep 2011
• Company remains bullish on prospects for ethanol blending and believes for the prevailing level of fuel prices, ethanol should be priced at Rs32-35/l (current Rs27/l), with one quarter lag (July 2011)
• Current valuations do not lend support for greenfield expansion and company would not go for building a sugar refinery; it would also look for some policy clarity on sugar before making acquisition, hence, cash has been deployed to buy back shares-it bought 12.8mn shares at a total cost of Rs932mn     
• Sugar prices are likely to remain stable in the next 6 months while 15% higher crushing would expand volumes in FY12; BRCM replacement value is pegged at ~Rs45bn, compared to FY12E EV of Rs32bn which supports our BUY reco for a 9-mth revised TP of Rs81 (earlier Rs84).